Government proposes new measures to tackle international money laundering through UK vehicles
On 10 December 2018 the Government unveiled a package of measures to address the use of Scottish Limited Partnerships ("SLPs") and UK Limited Partnerships ("LPs") for money laundering in its response to a consultation on reforms to such partnerships. SLPs in particular have featured heavily in large corruption scandals, including the "Global Laundromat" in which as much as US $80bn may have been laundered out of Russia utilising over 100 SLPs. More recently, the scandal at Danske bank revealed US $200bn had been laundered through its Estonian branch with LPs one of the preferred vehicles used.
LPs and SLPs are partnerships which must have a general partner, liable for all debts and obligations of the firm, and a limited partner which contributes capital to the partnership but which is not normally liable for the debts and obligations of the firm. Both partners can be corporates and based offshore. LPs/ SLPs are simple to set up through an official formation agent for a nominal fee (as little as £50). These partnerships accordingly have become popular for money laundering because they are a cheap to set up vehicle which allows for anonymous ownership and control while giving the external impression of being a respectable UK business. SLPs differ from LPs in that they have legal personality which allows them to enter into contracts and own property directly. Although there are many genuine uses for them, this makes them particularly attractive to criminals. Since 2008 no other form of UK company or partnership has been allowed to have all corporate partners/ directors.
Given the scandals involving them, since July 2017 SLPs have had an obligation to investigate their ownership and control and register details of those with significant control with Companies House. This change to the law resulted in 80% less SLPs being registered, which speaks volumes. However, Companies House is unable to effectively police these rules so it is likely there are many SLPs which are registered and simply do not comply with the requirements. When the latest proposed changes are brought into law (the timeframe for this is not specified but commentary has suggested the legislation will be developed in 2019) the proposal is that all SLPs and LPs will become more transparent and be required to register with an agent who is subject to the anti-money laundering rules (e.g. a lawyer or accountant), have a genuine link to the UK, and confirm or update the information held by Companies House every 12 months to ensure its ongoing accuracy.
This drive towards greater transparency fits with other changes brought in by the Government to increase transparency and fight corruption such as making publicly accessible the register of foreign beneficial ownership of UK property, introducing unexplained wealth orders, and launching the Serious and Organised Crime Strategy on 1 November 2018 with additional resources allocated to tackling money laundering and organised crime.
It remains to be seen whether the new measures successfully deter criminals from laundering money using UK entities. Until there is wider reform of Companies House, so that it is sufficiently resourced to undertake meaningful checks on the information provided to it, it seems likely that criminals will continue to find ways to use these structures and avoid detection whilst giving those who use them properly, and comply with the rules, a bad name.
Link to the government's website can be found here.